Question

Why would the level of disclosure have any impact on the agent’s liability?

Answer 1

Hiring of agents is a very profitable move by business organisation, which helps them attain more efficiency and expand their operations, while also making use of the expertise of others or the agents. In a principal-agent relationship one of the entities that is called as principal appoints another entity called as agent to act on its behalf. Agents, acting on behalf of the principal should not have any conflict of interests when they carry out the acts. This relationship is also called “Agency” and the “law of agency” applies to this relationship. The laws here may be crucial in establishing the guidelines and frameworks under which the agency relationship can be practiced. As in many other cases, there may also be certain liabilities attached to this relationship for both agents as well as the principals. When an agent is involved, a liability may occur because this kind of relationship shows that the principal is itself acting through the acts of the agent. The level of disclosure of the principal may affect and impact the agent liability and make it more severe, lesser, or none. The levels of disclosure in the agency relationship include un-disclosure, partial disclosure, and complete disclosure/disclosure of the principal, which impact the liability of the agent.

Undisclosed Principal- it is a kind and level of disclosure where the client/third party (with which the agent interacts on behalf of the principal) has no notice or idea that the agent is acting on behalf of the principal. Because the principal has authorized the agent to act on its behalf, the courts will be protecting the agent for liability in these cases. The principal will be liable to the client or the third party, exceptions being the cases where a side agreement exists between the client/third party and the agent. In most cases, there is an explicit agreement, which signifies and details that the principal organisation or company will bear any liability for the undisclosed principal cases.

Partially Disclosed Principal- in this kind/level of disclosure, the client or the third party is not aware of the exact identity of the principal, but knows that the agent may be acting (or is acting) on behalf of someone/principal. In this case the agent will be liable to the client/third party if the party believes that the agent is the actual party and has no clues regarding the identity of the principal.

Disclosed Principal- in this kind and level of disclosure, the client or the third-party clearly knows that the agent is acting on behalf of a principal and may also have knowledge regarding the identity of the party. The principal will also be considered to be disclosed even in cases where the identity of the principal is not explicitly or clearly known, but the client or the third party has enough information to reasonably infer it. In this case, the agent will not be liable to the third party and all the liability will be carried by the principal. The courts aim to protect the interest of the clients and the third parties in these cases.

Hence we can see that the level of disclosure has an impact on agent liability, which can vary in severity due to it.